Karachi, May 7, 2025 — A new report by the Institute of Cost and Management Accountants of Pakistan (ICMAP) reveals that business activity in Pakistan remains subdued, despite significant reductions in the State Bank of Pakistan’s (SBP) benchmark interest rate.
The findings, published in ICMAP’s latest ICMA MPS Review, underscore that rate cuts alone are insufficient to spur sustainable economic growth without parallel structural reforms.
On May 6, the SBP slashed the policy rate by 100 basis points, bringing it down to 11 percent—marking a steep drop from 22 percent in early 2024. While this move aimed to stimulate economic recovery, the ICMAP study suggests it has yet to translate into increased investment or a significant improvement in business sentiment.
Ahead of the May 5 Monetary Policy Committee (MPC) meeting, ICMAP conducted a survey of business leaders and financial analysts. The poll revealed that 45 percent of respondents expected a modest rate cut of 50 basis points, while 35 percent anticipated no change. Only 10 percent predicted a sharp 100-point reduction, highlighting a general preference for cautious monetary easing. The unexpected size of the rate cut introduced policy uncertainty, undermining investor confidence and delaying expansion plans.
ICMAP’s analysis indicates that despite the SBP’s aggressive rate-cutting cycle, the number of new company registrations with the Securities and Exchange Commission of Pakistan (SECP) has remained inconsistent. A brief uptick in March 2024 was followed by months of decline, suggesting that interest rate reductions have not effectively revived entrepreneurial momentum. The rate, though lower, has not sufficiently incentivized new business formation amid broader economic challenges.
According to ICMAP, Pakistan’s sluggish business environment is rooted in deeper structural issues: political instability, high energy tariffs, excessive taxation, costly imports, and limited access to affordable credit—particularly for small and medium enterprises (SMEs). These factors continue to stifle private sector growth, despite the more accommodative rate environment.
ICMAP’s Strategic Policy Recommendations
To address these persistent challenges, ICMAP has proposed a multi-pronged reform agenda:
1. Pair Monetary Easing with Structural Reforms
Lowering the rate is only effective if accompanied by reductions in industrial energy costs, tax simplification, and regulatory clarity. These steps are essential to improve the overall investment climate.
2. Strengthen Fiscal Management
While FBR revenue grew by 26.3% in July–April FY25, it still falls short of targets. ICMAP recommends expanding the tax base, trimming non-essential expenditures, and restructuring loss-making state enterprises.
3. Promote Export Diversification
To narrow the trade deficit, ICMAP urges targeted support for high-potential sectors like IT, pharmaceuticals, and agriculture.
4. Ensure Regulatory Predictability
Investor confidence is undermined by inconsistent regulations. A more transparent and stable policy framework is vital.
5. Maintain Inflation and Exchange Rate Stability
With inflation at 0.3% in April, ICMAP stresses the importance of closely managing inflation expectations and allowing gradual exchange rate adjustments to safeguard economic stability.
6. Enhance Access to Credit
Despite lower rates, credit remains inaccessible for many SMEs. ICMAP calls for expanded credit guarantee schemes, fintech innovation, and digital lending platforms to widen financial inclusion.
ICMAP concludes that while the SBP’s rate cuts mark a step in the right direction, they must be part of a broader economic transformation. Only through coordinated monetary, fiscal, and structural reforms can Pakistan unlock sustainable growth and reinvigorate business confidence.